Vietnam’s public debt to GDP ratio will “cross the red line” soon although it remains within a safe limit now, a department head of the National Economics University has warned.

By the end of 2012, Vietnam’s national debt reached US$90 billion, equal to 55.7 percent of its GDP and only a short way from the “red line” of 65 percent of the gross product, Pham The Anh, head of macro-economics at the Hanoi-based university, told Tuoi Tre in a recent interview, citing official government statistics.

Anh, who holds a PhD, talked public debt with Tuoi Tre after Prime Minister Nguyen Tan Dung approved a loan borrowing and debt clearing plan for 2014 last week.

According to the plan, the government is expected to borrow VND367 trillion ($17.31 billion) in domestic debt, including VND197 trillion to offset public overspending, VND100 trillion to issue government bonds for investment and a VND70 trillion debt rollover.

The academic said although the current public debt to GDP ratio is considered being in safe waters, the burden it creates for the country is enormous.

Vietnam has to annually spend up to $5 billion on servicing the $45 billion domestic debts borrowed at an average interest rate of 10 percent, and another $1 billion for the foreign debts loaned at 2.5 percent interest, Anh said.

“This means we need around $6 billion a year only to pay loan interest,” he concluded.

$180 billion in public debt

Anh noted that Vietnam’s national debt is calculated, excluding the outstanding debts in capital construction – expenses for new construction and major repairs and renovation of state-owned facilities –and debts accumulated by state-run businesses.

The government reported to the National Assembly late last year that outstanding debts in capital construction were more than VND45 trillion ($2.12 billion). In the same report, the government said state-run enterprises owed $80 billion.

While not all of the debts incurred by state enterprises would become national debt, Anh warned this possibility cannot be ruled out because the government will have to repay the liabilities for these companies if they fail to do so.

In fact, this has happened in the case of debts owed by Vinashin, Dong Banh Cement and the Housing and Urban Development Corporation, all loss-making enterprises whose government-backed loans from foreign creditors were settled by the government.

“Hence, with the outstanding debts in capital construction and debts owed by state-run enterprises counted, Vietnam’s public debt would be some $180 billion, or more than 100 percent of its GDP in 2012,” Anh said, adding that the figure is four times higher than the annual budget collection of the Southeast Asian country.

Although the country’s national debt is under the safe limit of 65 percent of GDP approved by the National Assembly, the situation is not really so if “safety is evaluated by comparing the public debt with the budget collection of a government as applied in many countries,” Anh said.

This calculation reflects a government’s capacity in clearing its public debt, and the comparison in the case of Vietnam shows that “public debt is double the annual budget collection.”

“It’s really insecure when public debt has been growing at a faster pace compared to the budget collection,” he warned.

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